By Vitalii Kravchuk, Institute for Economic Research and Policy Consulting
Mat O’Brien’s recent contribution to the Washington Post’s Wonkblog on hyperinflation in Ukraine has had a huge impact. Drawing on work by Johns Hopkins professor Steve Hanke, O’Brien argues that, although the official rate of inflation from the Ukrainian State Committee on Statistics (Ukrstat) is 28.5 per cent, in reality it is more like 272 per cent.
Hanke is famous for his research on Zimbabwean hyperinflation, where the government was unable to calculate inflation and an alternative method had to be used. The main argument of Hanke’s article and of O’Brien’s blog post is that when a country’s currency collapses, it pushes up the prices of imports, which spill over to other prices. In this situation, Hanke argues, the true inflation rate can be calculated using “a rather straightforward application of a standard, time-tested economic theory” in the form of purchasing power parity, based on the free-market exchange rate (often the black market rate). This formula has been bluntly used in the case of Ukraine. Read more
** FT News **
* Hanergy’s Li tops Forbes’ China rich list | Stock jump of 75% in 3 days swells wealth of solar film group’s founder
* China lowers growth target to ‘around 7%’ | Goal signals acceptance country’s economy has entered ‘new normal’ Read more
By Wolfgang Fengler of the World Bank
For a good part of my life I have been an expat, working and living with my family in developing countries. It’s easier than most people imagine. If you can afford it, you get good schooling and decent healthcare and Jakarta’s shopping malls, for example, are more stylish than those of Berlin or Vienna. My first posting was in Indonesia, where we stayed five years before moving to Kenya. Both are emerging economies, now considered “middle-income”; decade-long investments in education have borne fruit and created a sizeable and vibrant talent pool among the young, and the mobile revolution has progressed dramatically so that almost everyone now owns a cell phone. Not all is rosy though: poverty remains widespread and visible – especially if you venture outside of expat circles- and crime can also be a big concern.
The biggest difference, however, between the developed and developing worlds is the likelihood of being confronted with death. Read more
There is a natural tendency, when looking at economic development, to regard emerging markets as simply developed economies that got a late start. True, their patterns of sectoral change are broadly the same, moving out of agriculture into manufacturing and eventually into services. And just like the advanced economies, many emerging markets are now heading into a demographic headwind as their populations age and the dependency ratio of non-working to working people rises.
But there are some key differences in the way that emerging markets will have to cope with the demographic challenge. Both the way that their people have grown better-off and, now, the way that they are growing old are distinct from the paths that the advanced economies trod before them. Read more
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** FT News **
* China lowers growth target to ‘around 7%’ | New goal signals acceptance country’s economy has entered ‘new normal’
* Asia downbeat after Wall Street retreat | Chinese stocks falter after policymakers cut GDP growth target to 7% Read more
It is news to no-one that Ukraine is suffering fall-out from Russia. But in a study to be published on Thursday that isolates the impact only of trade, remittances and investment flows, analysts at Fitch Ratings say the sharp slowdown in Russia’s economy is a “significant shock” for neighbouring economies, including Urkraine, Armenia, Georgia, Azerbaijan and Kazakhstan.
Brazil, it seems, simply can’t put its house in order. The real hit R$3 to the US dollar during trading on Wednesday for the first time in more than a decade, after Renan Calheiros, president of the Senate, rejected a presidential decree that would have raised payroll taxes. The measure is seen as essential to meeting ambitious fiscal targets set by Joaquim Levy, the market-friendly finance minister installed in January to rescue the economy, and was the subject of a public rift between Levy and President Dilma Rousseff last weekend.
Failure to meet those targets – or even the fear of failure – puts Brazil’s hard-won investment grade credit rating in jeopardy. Markets were especially jittery on Wednesday, economic daily Valor Econômico reported, as a team from Standard & Poor’s, one of the three global ratings agencies, arrived in Brazil to evaluate the country’s credit risk. Read more
China is no stranger to internet sensations, but a documentary highlighting the scale of the country’s chronic air pollution seems to have shaken the trees all the way to Beijing’s highest branches.
Under the Dome, the 104-minute film made by journalist Chai Jing, has already been seen by 160m people on Tencent’s video page, and garnered praise from government ministers and state media. Investors are also taking note. Read more
** FT News **
* Israel PM warns against Iran nuclear deal | Obama administration reacts angrily to Israeli prime minister’s speech to Congress
* Ukraine sharply raises rates to 30% | Move aims to shore up the plunging currency and temper spiralling inflation Read more
As Brazil’s monetary policy committee sits down in Brasília the consensus view is that it will attempt to regain some credibility in the fight against inflation and raise its policy interest rate by 50 basis points for a third consecutive time. That would bring its target overnight rate, the Selic, to 12.75 per cent a year. Even after discounting inflation of about 7.5 per cent, that is still a very hefty 5.25 per cent a year. So whatever the Copom announces on Wednesday evening after two days of deliberation – it will be either 50bp or 25bp – it will raise protests from labour unions and others worried about the impact of high interest rates on consumption and jobs.
But policy makers may well feel that, right now, inflation matters more. Read more
** FT News **
* Glencore chief upbeat on oil trading | Forecast of ‘blow out’ year for business if current trend persists
* Thousands pay respects to Boris Nemtsov | Investigators yet to identify any suspects in connection with killing Read more
The strategic rivalry between Japan and China in Asia is finding expression not only in territorial disputes in the east China sea but also in plans for railways to criss-cross Thailand and eventually link the country to a wider Indochina rail network.
Both lines will serve primarily as freight transport systems. The planned Chinese-backed railway will run north-south from Thailand’s main deep seaport in Rayong to the Laos border at Nong Khai, with a separate spur that connects to Bangkok. Read more
** FT News **
* Anti-Maidan movement creates fear in Moscow | Putin critics become targets for groups allied to Kremlin
* Toyota says Russia will stay profitable | Carmaker focuses on mass premium vehicles Read more
The second cut in China’s interest rates in three months reveals key elements in Beijing’s thinking as it tries to reconcile an economic policy agenda beset with conflicting priorities, analysts said on Monday.
The task before China requires some delicate manoeuvres. It aims to wean the country off an extraordinary debt binge (see Martin Wolf ) while keeping GDP growth fairly robust. It hopes to combat disinflationary pressures while preventing the renminbi from sliding too sharply against the US dollar. It wants to curb a dangerous slump in industrial profits without resorting to another round of investment pump-priming. It needs to keep domestic liquidity levels buoyant in spite of a surge in capital flight. Read more
Mexico’s oil liberalisation is now well under way, with the tender of a second lot of oil assets – nine fields grouped into five blocks – now set to join the 14 that have already been announced. But do the country’s projections for future oil recovery add up?
The government is hoping that private investment in a sector closed for nearly 80 years under the monopoly of state oil company Pemex will succeed in turning around a decade of inexorable decline in Mexico’s oil output. Indeed, it has talked of adding 500,000 barrels per day (bpd) by 2018, when the government’s term is up. Read more
Last week Diezani Alison-Madueke, Nigeria’s oil minister and the president of Opec, called for an extraordinary meeting of the oil exporters’ cartel in the face of falling prices. Rafael Correa, president of Ecuador, Opec’s smallest member, rallied behind her saying prices were “unnecessarily low”.
They may not achieve much – Saudi Arabia and other Gulf exporters are against production cuts – but the calls will nevertheless be welcome in Venezuela, where the sudden collapse of oil prices has been especially bad news. Read more
Another week goes by and the outlook for Brazil’s economy gets gloomier still. The consensus on GDP is now for a 0.58 per cent contraction this year, according to the central bank’s latest weekly survey of market economists, while industrial production is expected to contract by 0.72 per cent. Inflation is expected to rise to 7.47 per cent; the central bank’s policy interest rate is seen ending the year at 13 per cent.
The survey was published on Monday after a weekend that saw yet another apparent rift open up at the top of government, along with some surprising behaviour by President Dilma Rousseff. Read more
** FT News **
* Fridman attacks North Sea deal threat | Billionaire’s fund says government plans to block investment ‘not rational’
* Boris Nemtsov: Last words in FT interview | Edited highlights from discussion with politician Read more
Gulzar Ahmed is one small link in the human bridge between Dharavi, one of India’s largest shanty towns, and the fashion boutiques of Milan.
The master tailor in a small workshop run by Italian designer Viola Parrocchetti, Ahmed is one of thousands of skilled craftsmen that live and work in Dharavi, providing tailoring and embroidering services to India’s thriving fashion industry, much of it destined for export. Read more